Business Finance Glossary
Plain-English explanations of key commercial finance terms
General Finance Terms
Annual Percentage Rate (APR)
The total yearly cost of borrowing expressed as a percentage, including interest and most compulsory fees.
Arrangement Fee
A one-off charge applied by a lender to set up a finance facility.
Bank of England Base Rate
The official interest rate set by the UK’s central bank, which influences borrowing costs across the market.
Collateral
Assets pledged as security for a loan. If repayments are not maintained, the lender may have the right to recover funds from these assets.
Credit Score
An assessment of how likely a borrower is to repay debt, based on financial history and existing commitments.
Interest Rate
The percentage charged by a lender for borrowing money. Rates may be fixed or variable.
Principal
The original amount borrowed before interest and fees are added.
Term
The length of time over which a loan or finance agreement is scheduled to be repaid.
Working Capital
Funds available to cover day-to-day business expenses such as wages, rent, and suppliers.
Types of Finance Facilities
Asset Finance
Funding secured against equipment or machinery, allowing businesses to spread the cost of assets over time.
Bridging Loan
Short-term finance secured against property, used to cover temporary funding gaps until longer-term finance or a sale completes
Invoice Finance
Funding based on unpaid customer invoices, improving cash flow without waiting for payment terms.
Merchant Cash Advance
Finance repaid through a percentage of daily card sales, making repayments flexible.
Revolving Credit Facility
An ongoing credit line that allows businesses to borrow, repay, and borrow again up to an agreed limit.
Term Loan
A standard loan provided as a lump sum and repaid in regular instalments over a set period.
Principal
The original amount borrowed before interest and fees are added.
Term Loan
The length of time over which a loan or finance agreement is scheduled to be repaid.
Unsecured Loan
Borrowing that does not require specific assets as security, typically relying on creditworthiness.
Legal and Regulatory Terms
Debenture
A legal agreement giving a lender security over a company’s assets.
Default
Failure to meet repayment obligations under a finance agreement.
Personal Guarantee
A commitment from a business owner or director to repay borrowing personally if the company cannot.
Underwriting
The process lenders use to assess risk before approving a loan application.
Asset Finance Terms
Amortisation
The gradual reduction of a loan balance through scheduled repayments.
Asset Refinance
Raising funds by using assets already owned as security.
Finance Lease
A long-term rental agreement where the asset is used for most of its useful life.
Hire Purchase (HP)
An agreement where a business pays in instalments to use an asset and gains ownership after the final payment.
Operating Lease
A shorter-term agreement where the asset is returned at the end of the contract.
Balloon Payment
A larger final payment required in some agreements to complete repayment.
Residual Value
The estimated value of an asset at the end of a lease term.
Advance Rate
The percentage of an invoice’s value released to the business upfront.
Aged Debt Report
A summary of outstanding invoices categorised by how long they have been unpaid.
Factoring
A facility where the lender may manage credit control and collect payments from customers.
Invoice Discounting
Funding against invoices while the business retains control of collections.
Recourse Period
The maximum time an invoice can remain unpaid before funding is withdrawn.
Creditworthiness
An evaluation of a borrower’s ability to repay based on financial stability.
Fixed Rate
An interest rate that remains constant throughout the agreement.
Early Settlement
Repaying a loan before the agreed term ends, sometimes subject to fees.
Repayment Holiday
An agreed temporary pause in repayments, during which interest may still accrue.
Revolving Credit Facility Terms
Credit Limit
The maximum amount available to borrow at any one time.
Drawdown
Accessing funds from an approved facility.
Commitment Fee
A charge for keeping credit available, even if unused.
Availability Period
The timeframe during which funds can be drawn.
Renewal
A periodic review to determine whether the facility will continue.
Trade Finance Terms
Letter of Credit
A bank guarantee that payment will be made once agreed conditions are met.
Bill of Lading
A document issued by a shipping carrier confirming receipt and transport of goods.
Export Credit Insuranceee
Protection against non-payment by overseas buyers.
Supply Chain Finance
Funding that allows suppliers to be paid earlier while buyers retain extended payment terms.
Bridging Finance Terms
Loan-to-Value (LTV)
The ratio between the loan amount and the value of the property used as security.
Exit Strategy
The planned method for repaying the loan, such as selling or refinancing the property.
Rolled-Up Interest
Interest added to the loan balance and paid at the end of the term.
First Charge
Primary claim over a property if it must be sold to repay debts.
Merchant Cash Advance Terms
Advance Amount
The total funding provided upfront.
Factor Rate
A multiplier used to calculate total repayment rather than a traditional interest rate.
Card Sales Percentage
The agreed portion of daily card revenue used to repay the advance.
Revenue-Based Finance
Funding where repayments fluctuate in line with business income.